A report from MUFG notes the impact of US tariff policy uncertainty and the potential for coordinated foreign exchange intervention by the US and Japanese authorities as influencing the Dollar’s value. This uncertainty has resulted in the Dollar’s weakening and an increase in real assets like Gold, while local factors affect the divergence of Asian currencies. <\/p>\n
The report suggests that tariff increases might be delayed due to the upcoming US mid-term elections. The uncertainty surrounding tariffs on countries like South Korea, Canada, and the EU contributes to Dollar selling. While coordinated intervention is not currently anticipated, historical trends indicate such interventions by Japanese authorities have been effective during fundamental shifts or in coordination with other authorities.<\/p>\n
The increasing uncertainty over US tariff policy is causing clear dollar weakness as we move into February. We have seen the Dollar Index (DXY) fall from above 105 in late 2025 to test the 102.50 level this month. Traders should consider using put options on dollar-tracking ETFs to capitalize on this downward pressure in the short term.<\/p>\n
This environment is fueling a surge into real assets like gold. Gold has rallied strongly in recent weeks, climbing over 7% since November to break past $2,400 an ounce as investors seek a reliable hedge. We see value in buying call options on gold futures or related ETFs to gain leveraged exposure to this ongoing trend.<\/p>\n
The threat of coordinated foreign exchange intervention by US and Japanese authorities is also a major factor, especially for the yen. We saw Japan step into the market several times in 2024 and 2025 when the dollar-yen rate became too high, and current levels are once again inviting scrutiny. Holding long USD\/JPY positions is therefore risky, and these should be protected with out-of-the-money puts.<\/p>\n
While tariff talk is driving market anxiety, we believe major policy changes will be slow to materialize before the US mid-term elections this November. The administration will likely avoid major economic shocks, meaning volatility will be driven by rhetoric rather than action. This suggests traders could use volatility-based strategies, like straddles on the Mexican Peso or Canadian Dollar, which are highly sensitive to US trade news.<\/p>\n
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